Concerns over IFC’s upcoming performance standards review

22 September 2009

By Ben Natkin, Bank Information Center

The IFC has launched a three-year review and update of their policy and performance standards on social and environmental sustainability, but civil society has raised concerns about the process and criticisms remain over the content of the standards.

This is the first update of the International Finance Corporation’s (IFC) environmental and social standards since their implementation in 2006 (see Update 50), and will result in a revised policy to be finalised by December 2010. September marked the opening of the first of three consultation phases with the launch of a website, where stakeholders can comment on their experiences with the current policy and suggest improvements.

A key gap is that the standards contain no overarching policies on human rights or climate change.

Many civil society organisations were very critical of the policy and performance standards from their 2006 inception, and hope that the review process will provide an opportunity to achieve substantive change. The IFC, however, has referred to the process as merely a “fine tuning” and repeatedly mentioned that three years after the launch of the standards is a very short period in which to conduct a review, implying they are considering changes on a much smaller scale.

In July, the IFC released a report reflecting on implementation of the standards thus far. The report covers approximately 560 projects and concludes that the standards contribute to the IFC’s business and help with risk management. It also finds that the disclosure of information in the life-cycle of IFC projects has been inconsistent. However, the report excludes studies of the impact of IFC standards on communities and the environment and instead focusses on the IFC and its clients. The paper then lays out the emerging agenda and approach that is likely to form the core of the review process.

In a response to the report, 150 NGOs submitted a letter to IFC head Lars Thunell, highlighting that the review process did not provide an opportunity for consultation with communities affected by IFC projects or allow robust input from those communities. The letter argues that “it is essential that IFC solicit input from individuals and communities who have first hand knowledge of project impacts and effectiveness, including intended beneficiaries, indigenous peoples and their representative federations and civil society partners, those subjected to displacement and those who have experienced changes in their local environments.” While the IFC acceded to the request to consult with affected communities, it intends to meet with only up to ten, and will largely rely on external assessments to solicit community input.

The NGOs also called on the IFC to be transparent in the review process, undertake consultations in regions with affected communities, and make revisions to the standards available to civil society at the same time as changes are submitted to the board of directors. The IFC has incorporated many of these points into its consultation plan.

The three key areas for which the IFC is seeking feedback in the first stage of consultations on the review are clarity of language, implementation effectiveness, and gaps in current coverage. One of the biggest objections to the current standards from civil society is that the weakness of language and vague commitments can allow funding to continue even in violation of the standards.

Civil society organisations have a number of concerns about substantive areas where the standards are still lacking (see Updates 50, 46). A key gap is that the standards contain no overarching policies on human rights or climate change. Furthermore, as the policy currently stands, clients are not required to gain the free, prior, and informed consent of affected communities in projects with significant potential impacts. Instead the IFC must simply demonstrate that it has achieved “broad community support”, a far looser requirement.

Some of the failings of current IFC policy came to light in late August when World Bank president Robert Zoellick announced the suspension of all financing from the IFC for the oil palm sector after finding that the Wilmar Group violated several of the performance standards and that the IFC had ignored its own policies in letter and spirit (see Update 67).